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November 14, 2022

The next supply chain crisis is coming. Here are 3 things CEOs can do.

Daily Briefing

    While supply chain issues have eased slightly since the beginning of the year, the health care industry is still experiencing "tremendous" shortages. Here are three steps your organization can take to prepare for and overcome the next supply chain challenge.

    The health care supply chain is experiencing 'tremendous' shortages

    During the pandemic, health systems amassed stockpiles of medical supplies, including masks, gowns, gloves, face shields, and other PPE. However, transportation delays, workforce shortages, and gas supply issues have led to broad shortages across the entire health care supply chain, Alex Kacik writes for Modern Healthcare.

    Currently, the number of items in a shortage is around five times higher than pre-pandemic levels, according to David Hargraves, SVP of supply chain at Premier, a group purchasing and consulting organization.

    And while this number of items in a shortage has declined from roughly ten times higher than pre-pandemic levels earlier this year, Erin Fox, senior pharmacy director at University of Utah Health, noted that "[w]hat we saw earlier this year could happen again."

    "Each one of those [items in a shortage] requires work to identify a substitute product and [change] the item master data in the enterprise resource planning system. That means that supply chain executives are not spending time on other cost-reduction strategies," Hargraves said. "We have heard from supply chain executives at a number of healthcare systems that it has been a tremendous drain on resources."

    According to Premier, the shortage of roughly 15% of contrast media products will likely persist for the next three to six weeks, and over 20% of surgical automatic tourniquet systems will likely be in shortage.

    In addition, 15% of emergency medicine products, including needle stabilizers and stabilization devices for catheters, and over 10% of interventional specialty diagnostics are predicted to be in shortage in the coming month.

    Overall, Premier found that 120 categories of commonly used hospital supplies will likely experience shortages soon. "It is like a Whac-A-Mole problem across a broad set of products," said Matt Bossemeyer, Premier's director of supply chain analytics and IT service.

    In the pharmaceutical industry, FDA currently considers roughly 125 drugs in shortage.

    According to Fox, predictive analytics can help supply chain executives and providers plan for shortages. Even one week's notice can allow them to find alternative suppliers. However, Fox noted that shortage projections can also lead to supply hoarding.

    "We need a functioning supply chain with more transparency to allow more risk-based assessment and potential fixes," Fox said.

    Separately, David Dobrzykowski, an associate professor of supply chain management at the University of Arkansas and director of the university's Walton College Healthcare Initiatives, said that ongoing supply chain issues will continue straining hospital finances that have already been impacted by high labor costs and inflation.

    "There is still a lot of pent-up inflation in the supply chain. A very small percentage of producers' higher costs have been passed on so far," Dobrzykowski said. "While time has been tough on health systems financially, there is no sign of it easing."

    3 steps to prepare for future supply chain shortages

    Writing for the Harvard Business Review, Christian Schuh, Wolfgang Schnellbächer, and Daniel Weise of BCG offer three tips to help organizations prepare for—and overcome—supply chain shortages:

    1. Establish a top-notch sensing and risk-intelligence operation

    To understand the likely risks in an organization's supply chain, leaders must invest in risk monitoring and strategic foresight.

    In addition, organizations should take note of eight risk categories:

    • Operational, financial, reputational, and structural risks, which are associated with individual suppliers
    • Disasters, geopolitical, and fiscal risks, which are associated with a supplier's country or region
    • Industry risks, which are specific to a supplier's industry

    Then, organizations can forecast potential risks using key risk indicators. "After doing this, companies are in a good position to determine what they need to do next," the authors write.

    2. Limit your product offerings

    According to the authors, companies should scale back their product offerings by "eliminating some product lines and modifying the remaining products by simplifying their design, harmonizing their specifications, and standardizing their constituent raw materials, components, and other ingredients, as well as their packaging materials."

    3. Eliminate risks from your supply chain

    To prepare for supply chain shortages, companies should consider implementing risk-mitigation measures that cover the three elements of the supply chain, which include:

    • Procuring raw materials, components, and other parts of products
    • Manufacturing products
    • Delivering materials to factories and products to customers

    In addition, the authors urge companies to regain "control of their supplies of critical raw materials and components."

    "As CEOs tackle today's crises, it might seem perverse to have to start preparing for the next crisis," the authors write. "But it is essential that they do so. CEOs that can get ahead now by taking the steps we've outlined will ensure that their companies are well positioned for the rebound in the post-crisis phase." (Kacik, Modern Healthcare, 11/10; Schuh et al., Harvard Business Review, 11/9)

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